The latest rage on the internet are penny auction sites. Penny auction sites are cash cows for the site owners and cash suckers for most who use these sites to try and get a great deal on expensive items.
How are penny auction sites a cash cow for the owners? Users of the site who wish to bid pay, on average, $.60 per bid. Each time a bid is placed the price increases by anywhere between $.01 and $.10, depending on the site. With the bid price starting at $0 and time of anywhere between 5 to 15 seconds added to the clock each time a bid is placed, the site owner stands to make $.60 each time a bid is placed. Additionally, since it takes 100 bids to increase the price of the item by $1 the site owner is making $60 for each time the item increases in price by $1.
What does this mean? Let’s say a site owner purchases a camera for $400. The bid price on this item starts at $0 and the winning bidder gets the camera for $200. It’s a great deal for the winning bidder but an even better deal for the site owner. Why? Well it took 20,000 bids for the camera to close at $200 which means the site grossed $12,000. Subtract the cost of the camera of $400 and the site just made a profit of $11,600.
So how does this make the penny auction user a sucker? In order to bid on any item you have to prefund your account by purchasing bids. Let’s say you purchased 75 bids for $45 and you’re going to be bidding on the camera in the above paragraph. Do you really think you’ll be able to get the camera with only 75 bids? You don’t know how many others are watching the bidding and plan to jump in at anytime. You don’t know how many bids these people have in their account and what they’re willing to spend. You also don’t know if the penny auction site is using humans, bots or a combination of the two in order to increase the bid price. If the site owner paid $400 for the camera he needs approximately 667 actual bids to break even. Of course, the site owner knows going in that there is no way he’s letting this camera go unless he gets 1,000 true bids or $600. It could be only you and 3 other actual bidders on the site but you can be sure that all 4 of you will lose your $45 and possibly more.
Penny auction sites are a no brainer as far as business is concerned but something I would personally never get involved with as a consumer. If a time comes where any of these penny action sites are being audited, have been guaranteed to be bot free, there are no employees of the company able to bid I and I had 3 hours of free time to kill I would possibly delve into it. However, knowing what I know there is no way I would ever fund an account at one of the many penny auction sites and there is now reason why you should as well unless you suffer from the disease called stupidity.